Wall Street is abuzz about The Walt Disney Co.'s (DIS) investor day, with investor confidence building into the presentation to come after market close on Thursday.
According to FactSet, two analysts have upgraded Disney stock to a "Buy" in the past week while three have raised price targets in anticipation of the event. The analyst consensus remains a "Buy" with a consensus price target now set at $130.36, up about 4% from the consensus estimate at the close of March.
"We view Disney's catalyst path for the next year as highly attractive, and believe Thursday's investor day will likely be a deck-clearing event for sentiment," Cowen analyst Doug Creutz said.
Creutz upgraded Disney from "Market Perform" to "Market Outperform" based on numerous catalysts ahead, including a strong pipeline of films, progress of ESPN+ and a re-acceleration of consumer products. He also raised his price target by more than 20%, from $102 to $131, on his expectations.
To be sure, Creutz remained concerned about the Fox (FOXA) acquisition and its integration, which will remain an issue for investors to track for some time.
"We continue to have longer-term concerns about the Fox acquisition," Creutz said. "We have had a negative bias on Disney's acquisition of Fox given that we view the deal as expensive, dilutive of Disney's core competency in branded family entertainment, unnecessary with regard to the goal of moving Disney's brand to a DTC (direct-to-consumer) video product, and heavily loaded with integration risk given the cultural differences between the two firms."
However, Creutz said that at this point the coming catalysts to be outlined on Thursday evening outweigh the Fox integration and acquisition issues.
"Given that we believe the backdrop for the stock over the next year is likely to be quite upbeat due to a strong catalyst path, upgrading affords us the opportunity to be positive on shares while taking into consideration that the concerns we have may be at least somewhat misplaced," Creutz said. "Upgrading now allows us to avoid the risk of missing a run in shares between now and then."
Similarly, BMO Capital Markets Daniel Salmon had a change in outlook in expectation of Disney's investor day.
"When we upgraded to Market Perform from Underperform a year ago, we felt the stock had downside protection but lacked catalysts," Salmon said. "We feel the former still applies, but the latter has changed considerably, with an Investor Day on Thursday, two Star Wars-themed lands opening in the domestic parks this summer, the launch of Disney+ before year-end, and a potential re-start of the buyback program within 12 months."
Based on the list of opportunities ahead, Salmon upgraded the stock to an "Outperform" rating and raised his price target from $114 to $140. Salmon added that the investor day will be the linchpin to investors understanding the solid road map CEO Bob Iger has laid out for the company.
"After the Investor Day, we expect investors to value DIS shares more on a subscriber/revenue basis for the DTC subsegment, and earnings for the core businesses," he said. "Once we have rolled out more detailed DTC estimates, we expect to make this transition to our own valuation."
Considering the valuation that a company such as Netflix Inc. (NFLX) has garnered on the subscriber basis and the positive data reflected in Disney's existing ESPN+ product as well as the acquired controlling interest in Hulu, that valuation analysis could provide strong upside for the stock.
Shares of the entertainment giant are up a bit in pre-market trading Thursday amid the anticipation and have gained nearly 10% in the past three weeks. Analysts are suggesting it isn't done running yet.(Disney is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DIS? Learn more now.